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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-10261
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Pearl Mutual Funds
on behalf of its series:
Pearl Total Return Fund
Pearl Aggressive Growth Fund
2610 Park Avenue
P.O. Box 209
Muscatine, Iowa 52761
Robert H. Solt Stacy H. Winick
2610 Park Avenue Bell, Boyd & Lloyd PLLC
P. O. Box 209 1615 L Street, N.W., Suite 1200
Muscatine, Iowa 52761 Washington, DC 20036
(Name and address of agents for service)
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Registrant's telephone number, including area code: (563) 288-2773
Date of fiscal year end: December 31
Date of reporting period: December 31, 2003
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Item 1. Reports to Shareholders.
Pearl Mutual Funds
Annual Report
December 31, 2003
IMPORTANT
NEWS:
SEE PAGE 1
www.pearlfunds.com Pearl Funds
2610 Park Avenue PO Box 209 Muscatine IA 52761
866-747-9030 (toll-free) or 563-288-2773
Fax: 563-288-4101
E-mail: info@pearlfunds.com
Pearl Mutual Funds
2003 Annual Report
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Page
Important News.................................................................1
2003 Performance Review ...................................................2 - 3
Investment Strategy........................................................3 - 5
Investment Management Team.....................................................5
Pearl Total Return Fund Overview...........................................6 - 8
Pearl Aggressive Growth Fund Overview ....................................9 - 11
General Information......................................................12 - 13
Trustees and Officers....................................................14 - 17
Independent Auditors' Report .................................................18
Pearl Total Return Fund Financial Statements.............................19 - 21
Pearl Aggressive Growth Fund Financial Statements........................22 - 24
Notes to Financial Statements ...........................................25 - 26
Pearl Total Return Fund Financial Highlights..... ............................27
Pearl Aggressive Growth Fund Financial Highlights.............................28
Pearl Mutual Funds Pearl Funds
2610 Park Avenue
PO Box 209
Muscatine IA 52761
E-mail: info@pearlfunds.com
866-747-9030 (Toll-Free)
563-288-2773
Fax: 563-288-4101
www.pearlfunds.com
Chairman & President
David M. Stanley
Executive Vice President
Robert H. Solt
Vice President of
Investment Management
Kevin J. Burns
Vice President
Christopher A. Hoffman
Trustees
John W. Axel
Jeffrey R. Boeyink
Douglas B. Coder
Dr. David N. Dejong
David L. Evans
Robert H. Solt
David M. Stanley
Dr. James P. Stein
Staff
Karen M. Brookhart
Peggy A.Cherrier
Karen J. Grell
Renata R. LaMar
Important News! February 20, 2004
. Pearl Total Return Fund gained 35.73% during 2003 - and outperformed 4
of its 5 comparison indexes.
. Pearl Aggressive Growth Fund was up 53.36% during 2003 - strongly
outperforming all 5 of its comparison indexes.
. For the 4 years through December 31, 2003, Pearl Total Return Fund was
up 26.88%, while most stock indexes had big losses, including: Wilshire
5000 down (17.38%), MSCI World down (22.99%), Value Line (Geometric)
down (15.86%), All Equity Funds Average (Lipper) down (11.70%), All
Long-Term Taxable Funds Average (Lipper) down (1.65%), and S&P 500 down
(19.71%). These 4 years included the 3-year bear market (2000-2002) and
a strong market rise in 2003.
. Pearl Total Return Fund strongly outperformed all 5 of its comparison
indexes for the last 3 and 5 years through December 31 - both in total
return and risk-adjusted total return.
. During its first 2 1/2 years through December 31, 2003, Pearl Aggressive
Growth Fund was up 27.61% while all 5 of its comparison indexes had
losses: Wilshire 5000 down (1.55%), MSCI World down (0.85%), Value Line
(Geometric) down (9.32%), All Equity Funds Average (Lipper) down
(0.11%), and S&P 500 down (5.33%).
. Both Pearl Funds are no-load - no sales charge, commission, or
redemption fee. In addition, both Funds continued to make all their
investments on a no-load basis in 2003.
Please consider all information in this report and in the Prospectus. Past
performance does not guarantee future results. Figures above are not annualized.
Thank you for your confidence in Pearl Mutual Funds.
You are invited to visit our Website at www.pearlfunds.com. Please call, e-mail,
fax, or write to us. We are here to help you.
Sincerely,
Your Investment Management Team:
/s/ David M. Stanley
- ----------------------------------------
David M. Stanley
/s/ Robert H. Solt
- ----------------------------------------
Robert H. Solt
/s/ Kevin J. Burns
- ----------------------------------------
Kevin J. Burns
/s/ Christopher A. Hoffman
- ----------------------------------------
Christopher A. Hoffman
1
Pearl Mutual Funds
Performance Review as of December 31, 2003
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Review of 2003 Performance. Total Return of Pearl Total Return Fund, Pearl
Aggressive Growth Fund, and each Fund's Comparison Indexes:*
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For the year ended 12-31-03:
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Pearl Total Return Fund + 35.73%
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Wilshire 5000 Index + 31.64%
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MSCI World Index + 33.11%
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Value Line (Geometric) Index + 37.39%
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All Equity Funds Average (Lipper) + 34.73%
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All Long-Term Taxable Funds Avg. + 27.99%
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- --------------------------------------------------------
For the year ended 12-31-03:
- --------------------------------------------------------
Pearl Aggressive Growth Fund + 53.36%
- --------------------------------------------------------
Wilshire 5000 Index + 31.64%
- --------------------------------------------------------
MSCI World Index + 33.11%
- --------------------------------------------------------
Value Line (Geometric) Index + 37.39%
- --------------------------------------------------------
Standard & Poor's 500 Index + 28.69%
- --------------------------------------------------------
All Equity Funds Average (Lipper) + 34.73%
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* All total returns include dividends reinvested, except Value Line Index.
The total returns do not reflect the deduction of taxes that a shareholder
would pay on fund dividends or on redemption of fund shares. Likewise, the
total returns on indexes do not reflect the deduction of taxes that an
investor in stocks would pay on dividends or on sale of stocks. See Page 13
for a description of each index.
Pearl Aggressive Growth Fund strongly outperformed all 5 of its comparison
indexes during 2003. The more conservative Pearl Total Return Fund outperformed
4 of its 5 benchmark indexes. Past performance does not predict future
performance.
2003 Performance Factors. We believe Pearl Total Return Fund's and Pearl
Aggressive Growth Fund's comparative performance and total return during 2003
were affected by many factors, including each Fund's investment strategy and
decisions by the Funds' Manager, Pearl Management Company. These factors
include:
. U.S. and global stock markets recovered strongly during 2003 after the
painful 3-year bear market (2000-2002). Most stocks struggled early in
the year. However, stock markets rose sharply in the final nine months
of the year as investors appeared to be encouraged by the signs of a
recovering economy.
. Both growth-style and value-style funds performed very well in the
strong 2003 market. As in the previous 3 years, smaller-capitalization
stocks continued to perform better than larger companies. Overall,
international stocks also improved, performed better than U.S. stocks
during the year, and had the same pattern of significantly better
returns from smaller companies. U.S. high-yield bonds as a group were
also up strongly. We believe these trends had a positive effect on Pearl
Total Return Fund and an even greater positive effect on Pearl
Aggressive Growth Fund.
. During 2003, a majority of Pearl Total Return Fund's investments were in
relatively conservative mutual funds with below-average risk records, a
value emphasis, and a focus on small-cap to mid-cap stocks. The Fund
invested globally through mutual funds holding U.S. or foreign
securities or both. The Fund also continued to hold two bond funds. We
believe these decisions reduced risk and helped the Fund's comparative
performance - small caps helped significantly as did the Fund's foreign
stock exposure. This Fund was 80-93% invested in equity funds throughout
2003. The equity funds position was highest in the first half of the
year and was gradually decreased from mid-year through November as
perceived risks increased; this caution slightly reduced both risk and
performance.
2
. Pearl Aggressive Growth Fund held more growth-style mutual funds than
Total Return Fund and had an even greater small-cap emphasis, both of
which helped its performance in 2003. Aggressive Growth Fund continued
its significant investment in international equity funds and they
contributed to the Fund's strong outperformance. As its investment
strategy requires, this Fund is always fully invested (95% or more) in
equity mutual funds.
. Both Funds did not pay any sales charge, commission, or redemption fee.
Both Funds made all their investments on a no-load basis. See "No-Load
Investing" below. This helped both Funds control costs and helped their
performance.
. Pearl Management Company, the Funds' Manager, continues to research,
analyze, and evaluate data on many mutual funds, categories of funds,
and global stock markets. We believe this work helps our allocation
decisions and selection of mutual funds.
Investment Strategy
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Pearl Total Return Fund is a diversified fund of funds that seeks long-term
total return by being primarily invested (80% or more of net assets) in equity
mutual funds, except when Pearl Management Company believes a lower percentage
is justified by high risks affecting stock markets. This Fund seeks to limit
shareholders' risk by holding a modest defensive position at times and by
selecting some mutual funds that have demonstrated relatively lower volatility.
Pearl Aggressive Growth Fund is a diversified fund of funds that seeks long-term
aggressive growth of capital by being fully invested (95% or more) in equity
mutual funds at all times.
"Equity mutual funds" means funds whose objective is growth or capital
appreciation, including funds that invest in U.S. or foreign securities or both.
Long-Term Investing, Not Trading. Both Pearl Funds are long-term investors, not
short-term traders. Your investment management team is always ready to change
investments when we believe this is in our shareholders' interest, but we work
to avoid excessive turnover of the Funds' portfolios.
We are pleased that both Funds' portfolio turnover for the entire year 2003 was
relatively low: 34% for Pearl Total Return Fund and 47% for Pearl Aggressive
Growth Fund.
No-Load Investing. Both Funds are completely no-load - no sales charge, no
commission, no redemption fee. The Funds do not impose any distribution fee
(12b-1 fee). Some of the mutual funds in which the Funds may invest may impose a
12b-1 fee. The Funds can invest only in no-load (no sales charge and no
redemption fee), load-waived (no-load due to large purchases), or low-load
(sales load and redemption fee together must not exceed 2%) mutual funds. The
Funds also can invest in closed-end funds but have not yet done so.
Both Funds seek to avoid completely all sales charges, commissions, and
redemption fees - and both Funds did completely avoid them again in 2003.
Pearl Aggressive Growth Fund has never paid any sales charge, commission, or
redemption fee. All of its investments to date were made on a no-load basis.
Pearl Total Return Fund has not paid any sales charge, commission, or redemption
fee since 1998. All of its investments in the years 1999 through 2004 to date
were made on a no-load basis.
3
Access to Many Funds. The Funds' investments in many mutual funds are generally
large enough to take advantage of sales load waivers on large purchases. Thus,
both Funds are able to select no-load investments from a very wide range of
funds -- even though many of those funds would require most investors to pay a
sales charge.
Another potential benefit to Pearl Funds shareholders is that both Funds are
able to purchase shares of some mutual funds that are closed to new investors.
Pearl Total Return Fund holds 11 equity funds, and 8 of these are no longer open
to new investors. At year-end these funds comprised 64% of the Fund's total
assets. Of the 12 equity funds Pearl Aggressive Growth Fund holds, 9 are closed
to new investors. At year-end these funds comprised 75% of the Fund's total
assets.
Current Investments. At December 31, 2003, 82.5% of Pearl Total Return Fund's
net assets were invested in a diversified group of equity mutual funds, 9.9% in
a high-yield bond fund, 2.0% in a high-quality bond fund, and 5.6% in cash.
At December 31, 2003, 96.4% of Pearl Aggressive Growth Fund's net assets were
invested in a diversified group of equity mutual funds, with only 3.6% in cash.
Year-end investments of both Funds are listed in the financial statements.
Portfolio investments are subject to change at any time without notice.
We still believe there are many risks in the U.S. stock market, including
continued overvaluation of many stocks, built-in high expectations for economic
and earnings growth, possible further terrorist attacks, and the inevitable
uncertainties leading up to the November 2004 elections.
However, we believe the current historically-low interest rates are very
positive for stocks; they provide support for company earnings and encourage
some investors to move their money from low-yielding accounts into stock
investments. Recent research by Bank Credit Analyst indicates an unusually large
amount of investor cash is still on the sidelines.
Although always difficult to judge, on balance we believe the reward/risk ratio
is moderately positive for the near term but more negative longer-term. We also
believe the near-term outlook continues to favor small-to-mid-cap stock funds,
although their relative attractiveness has lessened as their outperformance has
continued.
Compared to the U.S., we believe international stocks overall (including those
in emerging markets), especially international small-cap and mid-cap stocks,
still appear to offer a slightly better reward/risk ratio than U.S. stocks. As
always, foreign markets have unique risks and opportunities.
Weighing these factors, Pearl Total Return Fund remains mostly invested in
equity mutual funds. A majority of this Fund's investments are in equity funds
that emphasize value and that we believe are relatively conservative, and in
equity funds that hold mostly small-to-mid-cap stocks rather than large-caps.
This Fund continues its significant investment in international stock funds.
Pearl Aggressive Growth Fund continues to be fully invested (95% or more) in
equity mutual funds. In comparison with Total Return Fund, Aggressive Growth
Fund's portfolio as a whole is more volatile, includes more growth-style funds,
has an even greater emphasis on small-cap stock funds, and also continues a
significant investment in international stock funds.
4
A more precise way to measure each Fund's asset allocation is its investment
portfolio asset breakdown, which counts each Fund's indirect investments through
the mutual funds held in its portfolio, using recent information on the
portfolio assets of those mutual funds. Based on the Funds' portfolio holdings
at December 31, 2003, each Fund's investment portfolio asset breakdown was:
Total Return Fund Aggressive Growth Fund
----------------- ----------------------
(as a percentage of total assets)
Total Stocks 73.7% 91.2%
U.S. Stocks 36.5% 44.2%
Foreign Stocks 37.2% 47.0%
Bonds 13.0% 0.6%
Cash 13.3% 8.2%
For example, at December 31, 2003, Pearl Total Return Fund's direct cash
position was 5.6%, but the percentage increases to 13.3% when the varying
amounts of cash held by the mutual funds in this Fund's portfolio are added.
Each Fund's asset allocation and portfolio holdings vary with changes in
investments.
We diligently seek to select the best mutual funds in view of changing market
conditions. Taking into account the opportunities and the risks, we believe each
Fund's current portfolio mix is appropriate for the current market environment.
Top 5 Mutual Fund Holdings at December 31, 2003 (as a percentage of net assets):
- -----------------------------------------------
Pearl Total Return Fund:
First Eagle Overseas, Class I 20.46%
William Blair International Growth, Class I 10.47%
N/I Numeric Investors Small Cap Value 9.99%
Pioneer High Yield, Class A 9.90%
Bridgeway Ultra-Small Company Market 9.39%
Pearl Aggressive Growth Fund:
Dreyfus Premier Emerging Mkts., Class A 12.81%
Bjurman, Barry Micro-Cap Growth 11.83%
American Century Int'l Opportunity, Inv. Cl. 11.35%
Wasatch Micro Cap 11.30%
Artisan International Small Cap, Inv. Class 9.80%
Both Funds are actively managed and may change investments at any time. Both
Funds have already made some portfolio changes during 2004 to date. Each Fund's
portfolio holdings will be at least slightly different, and may be significantly
different, by the time you read this report.
Investment Management Team
- --------------------------------------------------------------------------------
Pearl Mutual Funds' investment manager is Pearl Management Company. The
Manager's Investment Committee manages each Fund's portfolio. The Investment
Committee includes:
David M. Stanley, Chairman, President, and Chief Executive Officer
Robert H. Solt, Executive Vice President, Chief Operating Officer, and
Chief Financial Officer
Kevin J. Burns, Vice President of Investment Management and Chief
Investment Officer
Christopher A. Hoffman, Vice President
Information on the entire Pearl Management Company staff is on pages 14-17.
For more information, go to www.pearlfunds.com - pages on Management and Real,
Live People.
5
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Pearl Total Return Fund
- --------------------------------------------------------------------------------
10-Year Performance. Pearl Total Return Fund's 10-year performance record is
summarized in this graph:
Comparison of change in value of $10,000 investment in
Pearl Total Return Fund and its comparison indexes *
(as of 12-31 each year)
(with dividends reinvested, except for Value Line Index)
[GRAPH]
10-Year Growth of Pearl Total Return Fund and Comparison Indexes
----------------------------------------------------------------
Lipper Lipper MSCI Value Wilshire
Pearl All Equity All LT World Line 5000
Total Fds. Avg Tax. Fds Index Index Index Year
Return Growth Growth Growth Growth Growth End
$10,000 $10,000 $10,000 $10,000 $10,000 $10,000 1993
$ 9,681 $10,005 $ 9,880 $10,508 $ 9,399 $ 9,993 1994
$11,727 $12,511 $12,022 $12,685 $11,212 $13,638 1995
$13,391 $14,728 $13,656 $14,395 $12,712 $16,529 1996
$15,366 $17,304 $15,689 $16,664 $15,389 $21,702 1997
$16,073 $19,237 $17,220 $20,720 $14,806 $26,788 1998
$20,411 $25,670 $21,238 $25,887 $14,599 $33,101 1999
$20,729 $24,512 $20,881 $22,475 $13,326 $29,485 2000
$21,378 $21,252 $19,094 $18,695 $12,516 $26,252 2001
$19,079 $16,823 $16,319 $14,977 $ 8,940 $20,777 2002
$25,896 $22,666 $20,887 $19,935 $12,283 $27,351 2003
Past performance does not predict future performance.
* The total returns in this report, including the graph and tables, do not
reflect the deduction of taxes that a shareholder would pay on fund
dividends or on redemption of fund shares. Likewise, the total returns on
indexes do not reflect the deduction of taxes that an investor in stocks
would pay on dividends or on sale of stocks.
Pearl Total Return Fund
Average Annual Total Return
---------------------------
1 Year 5 Years 10 Years
+35.73% +10.01% +9.98%
Pearl Total Return Fund's average annual total return was + 10.01% during the
last 5 years and + 9.98% over the last 10 years. The value of an investment in
Total Return Fund grew 61% during the last 5 years and 159% during the last 10
years.
Performance of Pearl Total Return Fund and Comparison Indexes through 12-31-03:
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Average Annual Total Returns for years
ended 12-31-03 with dividends
reinvested (except for Value
Line Index): 1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------
Pearl Total Return Fund + 35.73% + 7.70% + 10.01% + 9.98%
- ------------------------------------------------------------------------------
Wilshire 5000 Index + 31.64% - 2.48% + 0.42% + 10.59%
- ------------------------------------------------------------------------------
MSCI World Index + 33.11% - 3.92% - 0.77% + 7.14%
- ------------------------------------------------------------------------------
Value Line (Geometric) Index + 37.39% - 2.68% - 3.67% + 2.08%
- ------------------------------------------------------------------------------
All Equity Funds Average (Lipper) + 34.73% - 2.58% + 3.34% + 8.53%
- ------------------------------------------------------------------------------
All Long-Term Taxable Funds Average
(Lipper) + 27.99% + 0.01% + 3.80% + 7.64%
- ------------------------------------------------------------------------------
See Page 13 for a description of each index.
6
- --------------------------------------------------------------------------------
Pearl Total Return Fund
- --------------------------------------------------------------------------------
Risk-Adjusted Total Return. Pearl Total Return Fund seeks to outperform its 5
comparison indexes on a long-term risk-adjusted total return basis. Two factors
should be considered together in assessing a mutual fund's performance: its
total return and its risk. Therefore, we measure the Fund's total return in
relation to the risk (volatility) it incurred, and then we compare this with the
risk-adjusted return of the Fund's 5 benchmark indexes.
Standard deviation is the conventional statistical measure used to determine the
volatility (variability) -- and therefore the risk -- of a mutual fund or an
index. The higher the standard deviation, the greater the volatility risk. To
minimize risk, a low standard deviation is desirable.
Standard Deviations of Pearl Total Return Fund and Comparison Indexes through
12-31-03:
- ------------------------------------------------------------------------------
Annualized Standard Deviations: 1 year 3 years 5 years
- ------------------------------------------------------------------------------
Pearl Total Return Fund 11.97% 16.30% 15.70%
- ------------------------------------------------------------------------------
Wilshire 5000 Index 11.76% 19.05% 18.95%
- ------------------------------------------------------------------------------
MSCI World Index 13.30% 17.75% 16.55%
- ------------------------------------------------------------------------------
Value Line (Geometric) Index 16.08% 22.80% 19.86%
- ------------------------------------------------------------------------------
All Equity Funds Average (Lipper) 11.92% 17.76% 18.33%
- ------------------------------------------------------------------------------
All Long-Term Taxable Funds Average (Lipper) 9.19% 13.43% 13.64%
- ------------------------------------------------------------------------------
See page 13 for a description of each index.
The Sharpe ratio is a conventional measure that combines total return and
standard deviation to produce a risk-adjusted performance figure. It is a ratio
of reward (total return in excess of the 90-day Treasury bill return) to the
volatility risk (standard deviation). The higher the number, the better the
risk-adjusted return. A high Sharpe ratio is desirable.
Sharpe Ratios of Pearl Total Return Fund and Comparison Indexes through
12-31-03:
- ------------------------------------------------------------------------------
Sharpe Ratios: 1 year 3 years 5 years
- ------------------------------------------------------------------------------
Pearl Total Return Fund + 2.92 + 0.36 + 0.48
- ------------------------------------------------------------------------------
Wilshire 5000 Index + 2.62 - 0.26 - 0.19
- ------------------------------------------------------------------------------
MSCI World Index + 2.43 - 0.36 - 0.31
- ------------------------------------------------------------------------------
Value Line (Geometric) Index + 2.28 - 0.22 - 0.44
- ------------------------------------------------------------------------------
All Equity Funds Average (Lipper) + 2.85 - 0.28 - 0.01
- ------------------------------------------------------------------------------
All Long-Term Taxable Funds Average (Lipper) + 2.96 - 0.17 + 0.03
- ------------------------------------------------------------------------------
See page 13 for a description of each index.
The Fund's risk-adjusted performance was better than 4 of its 5 comparison
indexes for the past one year, and was significantly better than all 5
comparison indexes during the past 3 and 5 years through December 31, 2003.
Pearl Total Return Fund had a positive Sharpe ratio for both the 3- and 5-year
periods, in contrast to all 5 benchmark indexes. Most of the 3- and 5-year
Sharpe ratios were negative, because stock markets underperformed Treasury bills
during the long, deep 3-year bear market (2000-2002) - but the Fund had positive
risk-adjusted performance for all 3 periods.
7
- --------------------------------------------------------------------------------
Pearl Total Return Fund
- --------------------------------------------------------------------------------
Performance Summary. Past performance does not predict future performance.
. Pearl Total Return Fund had a + 35.73% total return for the year ended
December 31, 2003.
. Pearl Total Return Fund's + 35.73% total return outperformed the
average (+ 32.97%) of this Fund's 5 comparison indexes during 2003.
See page 2. We believe this outperformance is significant because it
was achieved during the big 2003 market rise. Total Return Fund had a
risk-reducing partial defensive position, with only about
three-fourths of its total assets invested in stocks (through the
mutual funds in this Fund's portfolio) during the second half of the
year, while 3 of its 5 benchmark indexes are pure stock indexes that
are always 100% invested.
. The Fund's total return was + 35.73% in 2003, - 10.75% in 2002, +
3.13% in 2001, + 1.56% in 2000, and + 26.99% in 1999.
. During the entire 4 years through December 31, 2003, Total Return Fund
was up 26.88% while its 5 comparison indexes were down (13.92%) on
average (not annualized). See p. 1.
. The Fund strongly outperformed all 5 comparison indexes during the
last 3 years and 5 years -- and outperformed 4 of the 5 during the
last 10 years. See page 6.
. Pearl Total Return Fund's risk-adjusted total return strongly
outperformed all 5 comparison indexes during the last 3 years and 5
years.
Fund Expenses. Pearl Total Return Fund's total net expenses, after reimbursement
by the Manager (see page 12), were 0.98% of the Fund's average net assets during
2003. We believe this expense ratio is one of the lowest for all funds of its
type (independent fund of funds) in the U.S.
Net Asset Value & Dividend. Pearl Total Return Fund's net asset value per share
increased 35.73%, from $9.50 (ex-dividend) at December 31, 2002 to $12.89 at
December 31, 2003. The $12.89 net asset value was then reduced to $12.69 by
payment of the year-end income dividend of $.2041 per share. There was no
capital gains distribution for 2003. The dividend did not change the Fund's
total return. The Fund seeks long-term total return, not current income.
Net Asset Value, December 31, 2002 (ex-dividend) $ 9.50
Total return, year 2003 (+ 35.73%) + 3.39
------
Net Asset Value, December 31, 2003 (before dividend) 12.89
Income dividend per share ($.2041, rounded to
nearest whole cent) - .20
------
Net Asset Value, December 31, 2003 (ex-dividend) 12.69
Year-end 2003 Dividend. Last month we mailed your Shareholder Account Statement
showing your 2003 dividend and the total value of your Total Return Fund shares
at year-end. Nearly all shareholders reinvested this dividend as of December 31
to buy more Fund shares at the ex-dividend net asset value of $12.69 per share.
We also mailed to you last month a Tax Form 1099-DIV for your 2003 year-end
dividend. However, you did not receive a 1099-DIV if your dividend was less than
$10.
Net Assets of Pearl Total Return Fund increased from $39,928,483 at December 31,
2002 to $53,352,177 at December 31, 2003. This was primarily due to investment
results.
8
- --------------------------------------------------------------------------------
Pearl Aggressive Growth Fund
- --------------------------------------------------------------------------------
Fund Performance. Pearl Aggressive Growth Fund's performance record for the 2
1/2 years since its inception is summarized in this graph:
Comparison of change in value of $10,000 investment in
Pearl Aggressive Growth Fund and its comparison indexes *
(as of 12-31 each year, from 7-2-01 inception)
(with dividends reinvested, except for Value Line Index)
[GRAPH]
Growth of Pearl Aggressive Growth Fund and Comparison Indexes Since Inception
-----------------------------------------------------------------------------
Lipper MSCI Value Wilshire
Pearl All Equity World Line 5000
Aggressive Fds. Avg S&P 500 Index Index Index Year
Growth Growth Growth Growth Growth Growth End
$10,000 $10,000 $10,000 $10,000 $10,000 $10,000 2000
$10,059 $ 9,366 $ 9,443 $ 9,298 $ 9,240 $ 9,450 2001**
$ 8,321 $ 7,414 $ 7,356 $ 7,449 $ 6,600 $ 7,479 2002
$12,761 $ 9,989 $ 9,467 $ 9,915 $ 9,068 $ 9,845 2003
* The total returns in this report, including the graph and tables, do not
reflect the deduction of taxes that a shareholder would pay on fund dividends or
on redemption of fund shares. Likewise, the total returns on indexes do not
reflect the deduction of taxes that an investor in stocks would pay on dividends
or on sale of stocks.
** = Partial year return (from 7-2-01 to 12-31-01)
Pearl Aggressive Growth Fund has come through a very volatile first 2 1/2 years
of existence with a solid gain - and strongly outperformed all of its 5
comparison indexes during this period.
Performance of Pearl Aggressive Growth Fund and Comparison Indexes
- ------------------------------------------------------------------
through 12-31-03:
- -----------------
- ------------------------------------------------------------------------
Average Annual Total Returns for periods ended
12-31-03 with dividends reinvested (except for From 7-2-01
Value Line Index): 1 Year (inception)
- ------------------------------------------------------------------------
Pearl Aggressive Growth Fund + 53.36% + 10.24%
- ------------------------------------------------------------------------
Wilshire 5000 Index + 31.64% - 0.62%
- ------------------------------------------------------------------------
MSCI World Index + 33.11% - 0.34%
- ------------------------------------------------------------------------
Value Line (Geometric) Index + 37.39% - 3.84%
- ------------------------------------------------------------------------
Standard & Poor's 500 Index + 28.69% - 2.17%
- ------------------------------------------------------------------------
All Equity Funds Average (Lipper) + 34.73% - 0.04%
- ------------------------------------------------------------------------
See page 13 for a description of each index.
9
- --------------------------------------------------------------------------------
Pearl Aggressive Growth Fund
- --------------------------------------------------------------------------------
Risk-Adjusted Total Return. Even though Aggressive Growth Fund is not as focused
as Total Return Fund on the potential riskiness of its portfolio, it is useful
to measure Aggressive Growth Fund's total return in relation to the risk
(volatility) it incurred. Then we compare this with the risk-adjusted return of
the Fund's 5 comparison indexes.
Standard deviation is the conventional statistical measure used to determine the
volatility (variability) -- and therefore the risk -- of a mutual fund or an
index. The higher the standard deviation, the greater the volatility risk. To
minimize risk, a low standard deviation is desirable. However, an aggressive
growth fund by its nature will be more risky than a more conservative fund.
Standard Deviations of Pearl Aggressive Growth Fund and Comparison Indexes
through 12-31-03:
- ---------------------------------------------------------
From 7-2-01
Annualized Standard Deviations: 1 Year (inception)
- ---------------------------------------------------------
Pearl Aggressive Growth Fund 18.12% 21.76%
- ---------------------------------------------------------
Wilshire 5000 Index 11.76% 19.29%
- ---------------------------------------------------------
MSCI World Index 13.30% 17.86%
- ---------------------------------------------------------
Value Line (Geometric) Index 16.08% 25.30%
- ---------------------------------------------------------
Standard & Poor's 500 Index 11.82% 18.78%
- ---------------------------------------------------------
All Equity Funds Average (Lipper) 11.92% 18.65%
- ---------------------------------------------------------
See page 13 for a description of each index.
The Sharpe ratio is a conventional measure that combines total return and
standard deviation to produce a risk-adjusted performance figure. It is a ratio
of reward (total return in excess of the 90-day Treasury bill return) to the
volatility risk (standard deviation). The higher the number, the better the
risk-adjusted return. A high Sharpe ratio is desirable.
Sharpe Ratios of Pearl Aggressive Growth Fund and Comparison Indexes through
12-31-03:
- ---------------------------------------------------------
From 7-2-01
Sharpe Ratios: 1 Year (inception)
- ---------------------------------------------------------
Pearl Aggressive Growth Fund + 2.91 + 1.09
- ---------------------------------------------------------
Wilshire 5000 Index + 2.62 - 0.30
- ---------------------------------------------------------
MSCI World Index + 2.43 - 0.28
- ---------------------------------------------------------
Value Line (Geometric) Index + 2.28 - 0.54
- ---------------------------------------------------------
Standard & Poor's 500 Index + 2.36 - 0.51
- ---------------------------------------------------------
All Equity Funds Average (Lipper) + 2.85 - 0.23
- ---------------------------------------------------------
See page 13 for a description of each index.
Aggressive Growth Fund's risk-adjusted performance was better than all 5 of its
comparison indexes in the year 2003 - and since its inception was significantly
better than all 5 benchmarks. Within this group Aggressive Growth Fund had the
only positive Sharpe ratio during the difficult market of the past 2 1/2 years.
10
- --------------------------------------------------------------------------------
Pearl Aggressive Growth Fund
- --------------------------------------------------------------------------------
Performance Summary. Past performance does not predict future performance.
. Pearl Aggressive Growth Fund had a + 53.36% total return for the year
ended December 31, 2003.
. Pearl Aggressive Growth Fund's + 53.36% total return strongly
outperformed the average total return (+ 33.11%) of this Fund's 5
comparison indexes during 2003. See page 2 for each index's total
return.
. The Fund also strongly outperformed all 5 of its comparison indexes
since its inception (July 2, 2001). During its first 2 1/2 years
though December 31, 2003, Pearl Aggressive Growth Fund was up 27.61%
while all 5 benchmark indexes had losses, down (3.43%) on average (not
annualized). See page 1 for each index's total return.
. Pearl Aggressive Growth Fund also strongly outperformed all 5
comparison indexes on a risk-adjusted total return basis for the 2 1/2
-year period since its inception.
Fund Expenses. Aggressive Growth Fund's total net expenses, after reimbursement
by the Manager (see page 12), were 0.98% of the Fund's average net assets during
2003. We believe this 0.98% expense ratio is one of the lowest for all funds of
its type (independent fund of funds) in the U.S.
Net Asset Value. Aggressive Growth Fund's net asset value per share increased
53.36%, from $8.19 at December 31, 2002 to $12.56 at December 31, 2003.
This Fund did not pay a dividend or distribution in 2003.
The Fund seeks long-term aggressive growth, not current income.
Net Assets of Pearl Aggressive Growth Fund increased from $14,605,340 at
December 31, 2002 to $21,056,350 at December 31, 2003. This was primarily due to
investment results.
11
General Information
- --------------------------------------------------------------------------------
This report is provided for the shareholders of Pearl Mutual Funds. This report
is not authorized for distribution to prospective investors unless preceded or
accompanied by a current Prospectus. The Prospectus contains more complete
information on the Funds, including fees and expenses. Please read the
Prospectus carefully before you invest or send money. To obtain a Prospectus,
please call toll-free 866-747-9030 or visit our Website at www.pearlfunds.com.
Shares of the Pearl Funds are available to persons residing in certain states.
Please go to www.pearlfunds.com or call toll-free 866-747-9030 to determine
whether you are eligible to purchase Fund shares. This report is not an offer of
or a solicitation of an offer to buy either Fund, nor shall either Fund be
offered or sold to any person, in any jurisdiction in which the offer,
solicitation, purchase, or sale would be unlawful under its securities law. The
Funds are offered only to residents of the United States.
Performance is historical and does not guarantee future results. Investment
return and principal value of an investment in each Pearl Fund will fluctuate,
so that an investor's shares in the Fund, when redeemed, may be worth more or
less than their original cost. Performance changes over time and may be
materially different by the time you read this report. For recent performance
information, go to www.pearlfunds.com or call toll-free 866-747-9030.
All investments involve risk. Even though Pearl Total Return Fund and Pearl
Aggressive Growth Fund each invest in many mutual funds, that investment
strategy cannot eliminate risk.
Please consult your tax advisor regarding the tax consequences of owning shares
of the Funds in your particular circumstances.
From July 1, 1972 through July 1, 2001, Pearl Total Return Fund's shares were
not registered under the Securities Act of 1933 and only private sales were
made. The Fund began offering its shares to the public pursuant to an effective
registration statement on July 2, 2001.
Total return means total growth of the investment, with all dividends and
distributions (including capital gains) reinvested.
Limits on Expenses. Pearl Management Company, the Funds' Manager, has
contractually agreed to reimburse each Pearl Fund for all ordinary operating
expenses (including management and administrative fees) exceeding these expense
ratios: 0.98% of a Fund's average net assets up to $100 million and 0.78% in
excess of $100 million. When the Manager has reimbursed a Fund for expenses in
excess of these limits, the Manager may recover the reimbursed amounts, for a
period that does not exceed five years, to the extent this can be done without
exceeding the expense limits. These expense limits will continue at least
through December 31, 2007 unless a change is approved by the Funds' Board of
Trustees.
The Manager's reimbursement of expenses that exceed the expense limit lowers the
expense ratio and increases the overall return to investors.
You May Send a Message to the Funds' Board of Trustees on any subject. Send your
message to the Pearl Mutual Funds office, addressed to the Board of Trustees. We
will promptly send it to all of the Trustees.
12
Communications Invited on Accounting and Auditing. Any person may communicate,
confidentially and anonymously, any concerns regarding accounting or auditing
matters to David L. Evans, Chairman of the Audit Committee of Pearl Mutual
Funds, by either of these two means:
1. Mail to 32500 El Diente Court, Evergreen, CO 80439 (preferred method)
2. Telephone to 303-679-9689
Privacy Policy. Because we consider the preservation of your privacy a priority,
Pearl Mutual Funds has adopted a privacy policy. You may view the privacy policy
at www.pearlfunds.com (click the Privacy Policy page) or by calling toll-free
866-747-9030.
We Invite and Welcome Your Calls. A real, live person will talk with you,
promptly. You will know the full name of the person you talk with. He or she
will be one of our officers or key staff persons. You will get a straight
answer. If we don't know the answer, we will find it and get back to you
quickly.
If we break this promise, tell us and you will receive our personal apology.
We Also Invite You to E-mail, Fax, or Write to Us:
E-mail to info@pearlfunds.com
Fax to 563-288-4101
Write to Pearl Mutual Funds, 2610 Park Avenue, PO Box 209, Muscatine,
IA 52761
Description of Indexes: The Wilshire 5000 Index is an unmanaged index that is
market-capitalization weighted, includes all publicly-traded U.S. common stocks
with readily available price data, and is generally representative of the
performance of the average dollar invested in U.S. common stocks. The MSCI World
Index is an unmanaged index that is market-capitalization weighted and is
generally representative of the performance of the global (including U.S. and
international) market for common stocks. The Value Line (Geometric) Index is an
unmanaged index that equally weights a broad range of publicly-traded U.S.
common stocks included in The Value Line Investment Survey and is generally
representative of the performance of the average U.S. common stock. The Standard
& Poor's (S & P) 500 Index is an unmanaged index of 500 stocks that is
market-capitalization weighted and is generally representative of the
performance of larger companies in the U.S. The All Equity Funds Average
(Lipper) is an unmanaged and unweighted average of the total return performance
of all equity-oriented mutual funds as classified and calculated by Lipper Inc.
The All Long-Term Taxable Funds Average (Lipper) is an unmanaged and unweighted
average of the total return performance of all long-term taxable mutual funds as
classified and calculated by Lipper Inc.
The holdings of each Pearl Fund are not identical to any of the indexes named
above or any other market index. Therefore, the performance of each Pearl Fund
will not mirror the returns of any particular index. It is not possible to
invest directly in an index.
Trademarks and copyrights relating to the indexes are owned by: Wilshire 5000
Index: Wilshire Financial Services, Inc.; MSCI World Index: Morgan Stanley
Capital International; Value Line (Geometric) Index: Valueline, Inc.; Standard &
Poor's 500 Index: The McGraw Hill Companies; and Lipper Averages: Reuters Funds
Information Limited, a United Kingdom corporation.
13
Trustees and Officers.
- ----------------------
The names and ages of the Trustees and Officers of Pearl Mutual Funds, the date
each was first elected or appointed to office, and their principal business
occupations and other public company directorships they have held during at
least the last five years, are shown below. Each Trustee and Officer serves in
that capacity for each of the two series of Pearl Mutual Funds: Pearl Total
Return Fund and Pearl Aggressive Growth Fund.
Date First Other
Elected or Public
Positions Held with Both Appointed Principal Occupations during Company
Name and Age at 12-31-03 Funds to Office ** Past 5 Years Directorships
- -------------------------- ------------------------ ------------ ------------------------------- -------------
Trustees who are "Interested Persons" of the Funds: *
Robert H. Solt, 36 Executive Vice Feb. 2001 Director since Feb. 2001, None.
President, Chief and Sept. Executive Vice President, Chief
Operating Officer, Chief 2002 Operating Officer, Chief
Financial Officer, (Trustee) Financial Officer, Secretary,
Secretary, Treasurer, and Treasurer since June 2001,
and Trustee Vice President, Asst.
Secretary, and Asst. Treasurer,
Feb. 2001 to June 2001, Pearl
Management Company. Prior
thereto (beginning 1991),
Officer, Iowans for Tax Relief,
Tax Education Foundation, and
Tax Education Support
Organization (nonprofit public
interest organizations).
David M. Stanley, 75 Chairman, President, July 1972 Chairman, President, Chief
Chief Executive Officer, Executive Officer, Asst.
Asst. Secretary, and Secretary, and Director, Pearl
Trustee Management Company. Chairman
and Director, Midwest
Management Corporation (private
investment company).
Trustees who are not "Interested Persons" of the Funds:
John W. Axel, 62 Trustee Dec. 1974 Owner and Chief Executive None.
Officer, Iowa Companies, Inc.
(holding company). President,
Environmental Services Inc.
(waste hauling). President,
Perfect Pallet Co. (pallet
manufacturer).
Jeffrey R. Boeyink, 41 Trustee Oct. 1997 Executive Vice President, None.
Iowans for Tax Relief, Tax
Education Foundation, and Tax
Education Support Organization
(nonprofit public interest
organizations).
Douglas B. Coder, 67 Trustee Dec. 1974 Owner, Coder Co. (business None.
brokerage). Owner, DBC Realty
(investments). Chairman and
Director, Catalyst
International (software).
Dr. David N. DeJong, 40 Trustee Dec. 1998 Professor of Economics, None.
University of Pittsburgh.
14
Date First Other
Elected or Public
Positions Held with Both Appointed Principal Occupations during Company
Name and Age at 12-31-03 Funds to Office ** Past 5 Years Directorships
- -------------------------- ------------------------ ------------ ------------------------------- -------------
David L. Evans, 62 Trustee June 1977 Owner and CEO, Evanwood None.
Corporation (consulting) since
Jan. 1992. Director, John Deere
Receivables, Inc. (asset-backed
securities). Chief Executive,
Rose Creek Ridge, LLC (farming)
since Aug. 2003. Chief
Financial Officer, Netbeam,
Inc. (Internet access)
Oct. 1999 to Nov. 2000.
Dr. James P. Stein, 52 Trustee Oct. 2003 Chairman of Board of Directors None.
(since 1999) and Director,
Central Bancshares, Inc.
Director, subsidiary banks of
Central Bancshares, Inc.
Director, Varied Investments,
Inc. (grain processing and
agricultural products). Doctor
of Veterinary Medicine. Private
investor.
Other Officers of Pearl Mutual Funds:
Kevin J. Burns, 34 Vice President of Jan. 1996 Director since June 1998, Vice None.
Investment Management, President of Investment
Chief Investment Management and Chief Investment
Officer, Asst. Officer since Feb. 2001, Asst.
Secretary, and Asst. Secretary and Asst. Treasurer
Treasurer since March 1997, Vice
President Jan. 1998 to Feb.
2001, and Research Director
Jan. 1996 to Feb. 2001, Pearl
Management Company.
Christopher A. Hoffman, 37 Vice President Oct. 2003 Vice President since Aug. 2003 None.
and Director since Sept. 2003,
Pearl Management Company.
Managing Member, Hoffman
Enterprises LLC. (Insurance).
Agent, Life Investors, since
June 2002. Registered
Representative, SII
Investments, Oct. 2002 to Aug.
2003. Registered
Representative, ISI Securities,
June 2002 to Sept. 2002.
Registered Representative,
Franklin Financial Services,
Sept. 2000 to May 2002. Agent,
American General Insurance,
Sept. 2000 to May 2002. Account
Executive, First Data Corp
(e-commerce), April 1998 to
Oct. 1999.
Karen M. Brookhart, 32 Asst. Secretary and March 2002 Asst. Secretary since March None.
Administrative Assistant 2002, Administrative Assistant
to Vice President of to Vice President of Investment
Investment Management Management since Sept. 2001,
Pearl Management Company.
Customer Service
Representative, HON Company
(Office Furniture), July 1999
to Aug. 2001. Marketing
Consultant, Elgin Broadcasting,
Sept. 1998 to June 1999.
15
Date First Other
Elected or Public
Positions Held with Both Appointed Principal Occupations during Company
Name and Age at 12-31-03 Funds to Office ** Past 5 Years Directorships
- -------------------------- ------------------------ ------------ ------------------------------- -------------
Peggy A. Cherrier, 51 Asst. Secretary and March 2001 Asst. Secretary since Feb. None.
Administrative Assistant 2001, Administrative Assistant
since Aug. 2000, Pearl
Management Company.
Administrative Assistant,
Iowans for Tax Relief, Mar.
1999 to Aug. 2000. Prior
thereto, Legal Assistant,
Allbee, Allison & Denning.
Karen J. Grell, 31 Asst. Treasurer and June 2001 Assistant Treasurer since June None.
Accountant 2001 and Accountant since Feb.
2001, Pearl Management Company.
Bookkeeper, Davenport Printing
Co., Dec. 1999 to Feb. 2001.
Prior thereto, Bookkeeper,
Kevin Grell Trucking.
Renata R. LaMar, 39 Asst. Treasurer and March 2001 Asst. Treasurer and Financial None.
Financial Administrator Administrator since Feb. 2001,
Accountant, Aug. 2000 to Feb.
2001, Pearl Management Company.
Accountant, Mar. 1997 to Aug.
2000, Heart of America
Restaurants & Inns.
* Mr. Stanley is an "Interested Person" of Pearl Mutual Funds, as defined in the
Investment Company Act of 1940, because he is the Chairman, President, Chief
Executive Officer, and a Director of Pearl Management Company, the investment
manager for Pearl Mutual Funds.
* Mr. Solt is an "Interested Person" of Pearl Mutual Funds, as defined in the
Investment Company Act of 1940, because he is the Executive Vice President,
Chief Operating Officer, Chief Financial Officer, Secretary, Treasurer, and a
Director of Pearl Management Company, the investment manager for Pearl Mutual
Funds.
** Dates prior to June 2001 correspond to the date first elected or appointed as
a Director or Officer of Mutual Selection Fund, Inc., the Funds' predecessor.
16
The business address of the Trustees and Officers affiliated with Pearl
Management Company is 2610 Park Avenue, PO Box 209, Muscatine, Iowa 52761.
The addresses of the other Trustees are:
Mr. Axel - 2001 Circle Drive, Muscatine, IA 52761
Mr. Boeyink - 303 Woodcreek Lane, Muscatine, IA 52761
Mr. Coder - 8711 East Pinnacle Peak Rd., Scottsdale, AZ 85255
Dr. DeJong - Department of Economics, University of Pittsburgh, Pittsburgh,
PA 15260
Mr. Evans - 32500 El Diente Court, Evergreen, CO 80439
Dr. Stein - Central State Bank Building, Room 207, 301 Iowa Avenue,
Muscatine, IA 52761
The Board of Trustees has overall responsibility for the affairs of Pearl Mutual
Funds. Each Trustee serves for an indefinite term of unlimited duration until
the next meeting of shareholders called for the purpose of considering the
election or re-election of such Trustee or a successor, and until the election
and qualification of his or her successor. The Board of Trustees may fill any
vacancy provided that at least two-thirds of the Trustees have been elected by
the shareholders. A Trustee may be removed, with or without cause, at any time
by a vote of at least two-thirds of the Funds' outstanding shares or by written
instrument signed by at least two-thirds of the remaining Trustees.
The Board of Trustees elects or appoints the Officers of Pearl Mutual Funds
annually. Each Officer serves until the election and qualification of his or her
successor, or until he or she sooner dies, resigns, or is removed or
disqualified. The Board of Trustees may remove any Officer, with or without
cause, at any time.
Statement of Additional Information. The Funds' Statement of Additional
Information includes more information about the Trustees and Officers. You may
obtain a free copy of the Statement of Additional Information in any of these
ways:
Download and view (and print, if desired) the Statement of Additional
Information at www.pearlfunds.com
Call toll-free 866-747-9030
E-mail to info@pearlfunds.com
Fax to 563-288-4101
Write to Pearl Mutual Funds, 2610 Park Avenue, PO Box 209, Muscatine, IA
52761
17
Deloitte
Deloitte & Touche LLP
Northwest Bank Building
101 West Second Street
Davenport, Iowa 52801-1813
USA
Tel: + 1 563 322 4415
Fax: + 1 563 445 9600
www.us.deloitte.com
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of Pearl Mutual Funds:
We have audited the accompanying statements of net assets of Pearl Mutual Funds,
including Pearl Total Return Fund and Pearl Aggressive Growth Fund
(collectively, the "Funds") as of December 31, 2003 and the related statements
of operations for the year then ended, and the statements of changes in net
assets and financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights of Pearl Total Return Fund for the years ended prior to December 31,
1999 were audited by other auditors whose report, dated February 22, 1999,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Funds as of December 31, 2003, the results of their respective operations, the
changes in their respective net assets and the financial highlights for the
respective stated periods in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
January 30, 2004
18
PEARL TOTAL RETURN FUND
STATEMENT OF NET ASSETS
December 31, 2003
ASSETS:
INVESTMENTS in mutual funds, all common Shares % of net Market
stocks of unaffiliated issuers: owned assets value
------------ ------------ ------------
Equity mutual funds:
Bridgeway Ultra-Small Company Market Fund....... 354,186 9.39% $ 5,291,534
First Eagle Overseas Fund, Class I.............. 632,030 20.46% 11,528,222
JP Morgan Mid Cap Value Fund, Select Shares..... 137,421 4.56% 2,569,768
Matthews Asian Growth and Income Fund........... 287,497 7.05% 3,973,214
N/I Numeric Investors Small Cap Value Fund...... 293,410 9.99% 5,630,529
Oakmark International Small Cap Fund, Class I... 277,408 7.91% 4,455,172
Oakmark Select Fund, Class I.................... 64,940 3.53% 1,988,452
Royce Special Equity Fund....................... 113,883 3.63% 2,046,470
Wasatch Core Growth Fund........................ 83,775 5.49% 3,092,987
William Blair International Growth Fund,
Class I........................................ 312,956 10.47% 5,899,225
------------ ------------
TOTAL EQUITY MUTUAL FUNDS.................... 82.48% 46,475,573
------------ ------------
Income mutual funds:
PIMCO Total Return Fund, Institutional Class.... 107,430 2.04% 1,150,574
Pioneer High Yield Fund, Class A................ 467,121 9.90% 5,577,423
------------ ------------
TOTAL INCOME MUTUAL FUNDS.................... 11.94% 6,727,997
------------ ------------
Money market mutual fund:
Vanguard Money Market Prime Fund................ 10,959 0.02% 10,959
------------ ------------
TOTAL INVESTMENTS (cost $42,572,019, including
reinvested dividends and distributions)........ 94.44% 53,214,529
Cash............................................... 5.65% 3,182,867
Accrued interest on bank account................... 0.00% 1,850
------------ ------------
TOTAL ASSETS 100.09% 56,399,246
------------ ------------
LIABILITIES:
Income dividend to be paid in cash
January 30, 2004.................................. 0.00% 1,922
Investment manager's fees payable (Note 5)......... 0.08% 36,965
Payable to manager for expenses of Fund (Note 5)... 0.01% 7,218
Other liabilities.................................. 0.00% 964
------------ ------------
TOTAL LIABILITIES 0.09% 47,069
------------ ------------
NET ASSETS, applicable to 4,440,390 outstanding shares
of beneficial interest (no par value); unlimited
shares authorized.................................... 100.00% 56,352,177
============ ============
NET ASSET VALUE -- OFFERING AND REDEMPTION PRICE
PER SHARE......................................... $ 12.69
============
NET ASSETS CONSIST OF:
Capital............................................ $ 47,492,825
Accumulated undistributed net investment income.... 408
Accumulated net realized losses.................... (1,783,566)
Net unrealized appreciation in value of
investments....................................... 10,642,510
------------
TOTAL NET ASSETS $ 56,352,177
============
See notes to financial statements.
PEARL TOTAL RETURN FUND
STATEMENT OF OPERATIONS
Year Ended
December 31,
2003
------------
INVESTMENT INCOME:
Income:
Dividends........................................... $ 1,318,447
Interest on bank account............................ 9,284
------------
TOTAL INVESTMENT INCOME....................... 1,327,731
Expenses, current year (Note 5):
Associations........................................ 1,795
Auditors' services.................................. 32,700
Custodian fees...................................... 4,415
Data processing..................................... 11,981
Trustees' fees (Note 6)............................. 26,571
Registration fees................................... 12,381
Insurance........................................... 19,265
Investment management and administrative services
fees (Note 5)...................................... 369,306
Legal services...................................... 45,386
Meetings............................................ 6,012
Other............................................... 1,918
------------
TOTAL EXPENSES BEFORE REIMBURSEMENT.............. 531,730
Expenses reimbursed by investment manager (Note 5)..... (96,067)
------------
TOTAL EXPENSES................................ 435,663
------------
NET INVESTMENT INCOME......................... 892,068
------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized losses on investments (securities of
unaffiliated issuers)................................. (710,322)
Change in net unrealized appreciation of investments... 14,164,350
------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS.... 13,454,028
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... $ 14,346,096
============
See notes to financial statements.
20
PEARL TOTAL RETURN FUND
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended Year Ended
December 31, December 31,
INCREASE (DECREASE) IN NET ASSETS: 2003 2002
------------ ------------
FROM OPERATIONS:
Net investment income................................................. $ 892,068 $ 393,096
Net realized losses on investments.................................... (710,322) (1,027,139)
Change in net unrealized appreciation (depreciation) of investments... 14,164,350 (4,218,298)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.... 14,346,096 (4,852,341)
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS (Note 7):
Dividends from net investment income.................................. (892,068) (393,096)
------------ ------------
FROM CAPITAL SHARES TRANSACTIONS:
Proceeds received for shares sold (366,020 and 211,154 shares)........ 4,062,507 2,155,143
Net asset value of shares (70,138 and 41,353 shares) issued in
reinvestment of distributions........................................ 890,047 392,852
Paid on redemption of shares (198,681 and 402,934 shares), including
exchanges into Pearl Aggressive Growth Fund.......................... (1,982,888) (4,181,260)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARES TRANSACTIONS:
(net increase (decrease) of 237,477 and (150,427) shares)....... 2,969,666 (1,633,265)
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.................................. 16,423,694 (6,878,702)
NET ASSETS:
Beginning of period................................................... 39,928,483 46,807,185
------------ ------------
End of period (including accumulated undistributed net investment
income, $408 and $308, respectively)................................. $ 56,352,177 $ 39,928,483
============ ============
See notes to financial statements.
21
PEARL AGGRESSIVE GROWTH FUND
STATEMENT OF NET ASSETS
December 31, 2003
ASSETS:
INVESTMENTS in mutual funds, all common Shares % of net Market
stocks of unaffiliated issuers: owned assets value
------------ ------------ ------------
Equity mutual funds:
American Century International Opportunities
Fund, Investor Class........................... 304,988 11.35% $ 2,391,106
Artisan International Small Cap Fund, Investor
Class.......................................... 132,176 9.80% 2,063,261
Bjurman, Barry Micro-Cap Growth Fund............ 73,522 11.83% 2,491,668
Bogle Small Cap Growth Fund, Institutional
Class.......................................... 69,476 8.70% 1,831,378
Century Small Cap Select Fund, Institutional
Class.......................................... 11,590 1.19% 251,159
Dreyfus Premier Emerging Markets Fund, Class A.. 160,513 12.81% 2,698,229
Matthews Pacific Tiger Fund..................... 134,789 8.42% 1,772,474
Oakmark Global Fund, Class I.................... 78,533 7.19% 1,514,117
Wasatch Micro Cap Fund.......................... 328,591 11.30% 2,379,002
Wasatch Micro Cap Value Fund.................... 125,093 1.43% 301,474
Wasatch Small Cap Value Fund.................... 194,800 4.90% 1,032,438
William Blair Small Cap Growth Fund, Class I.... 71,930 7.53% 1,584,611
------------ ------------
TOTAL EQUITY MUTUAL FUNDS.................... 96.45% 20,310,917
------------ ------------
Money market mutual fund:
Vanguard Money Market Prime Fund................ 6,388 0.03% 6,388
------------ ------------
TOTAL INVESTMENTS (cost $15,332,697, including
reinvested dividends and distributions)........ 96.48% 20,317,305
Cash............................................... 3.59% 755,025
Accrued interest on bank account................... 0.00% 503
------------ ------------
TOTAL ASSETS................................. 100.07% 21,072,833
------------ ------------
LIABILITIES:
Investment manager's fees payable (Note 5)......... 0.06% 14,414
Payable to manager for expenses of Fund (Note 5)... 0.01% 2,011
Other liabilities.................................. 0.00% 58
------------ ------------
TOTAL LIABILITIES............................ 0.07% 16,483
------------ ------------
NET ASSETS, applicable to 1,676,067 outstanding shares
of beneficial interest (no par value); unlimited
shares authorized.................................... 100.00% $ 21,056,350
============ ============
NET ASSET VALUE -- OFFERING AND REDEMPTION PRICE
PER SHARE......................................... $ 12.56
============
NET ASSETS CONSIST OF:
Capital............................................ $ 16,596,955
Accumulated net realized losses.................... (525,213)
Net unrealized appreciation in value of
investments....................................... 4,984,608
------------
TOTAL NET ASSETS............................. $ 21,056,350
============
See notes to financial statements.
22
PEARL AGGRESSIVE GROWTH FUND
STATEMENT OF OPERATIONS
Year Ended
December 31,
2003
-------------
INVESTMENT INCOME (LOSS):
Income:
Dividends........................................... $ 110,856
Interest on bank account............................ 2,657
-------------
TOTAL INVESTMENT INCOME.......................... 113,513
Expenses, current year (Note 5):
Associations........................................ 672
Auditors' services.................................. 12,001
Custodian fees...................................... 1,642
Data processing..................................... 4,502
Trustees' fees (Note 6)............................. 9,929
Registration fees................................... 7,827
Insurance........................................... 7,560
Investment management and administrative services
fees (Note 5)...................................... 142,153
Legal services...................................... 17,106
Meetings............................................ 2,251
Other............................................... 754
-------------
TOTAL EXPENSES BEFORE REIMBURSEMENT.............. 206,397
Expenses reimbursed by investment manager (Note 5)..... (44,409)
-------------
TOTAL EXPENSES................................ 161,988
-------------
NET INVESTMENT INCOME......................... (48,475)
-------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investments (securities of
unaffiliated issuers)................................. 681,180
Change in net unrealized appreciation of investments... 6,826,980
-------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS.... 7,508,160
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... $ 7,459,685
=============
See notes to financial statements.
23
PEARL AGGRESSIVE GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended Year Ended
December December
INCREASE (DECREASE) IN NET ASSETS: 31, 2003 31, 2002
------------- -------------
FROM OPERATIONS:
Net investment loss......................... ($ 48,475) ($ 131,951)
Net realized gains (losses) on investments.. 681,180 (1,206,451)
Change in net unrealized appreciation
(depreciation) of investments.............. 6,826,980 (1,746,594)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............... 7,459,685 (3,084,996)
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS (Note 7):
Dividends from net investment income........ 0 0
Distributions from net realized gains....... 0 0
------------- -------------
DECREASE IN NET ASSETS DUE TO
DISTRIBUTIONS........................... 0 0
------------- -------------
FROM CAPITAL SHARES TRANSACTIONS:
Proceeds received for shares sold (82,896
and 183,251 shares)........................ 915,735 1,850,762
Net asset value of shares (0 and 0 shares)
issued in reinvestment of distributions.... 0 0
Paid on redemption of shares (190,372 and
626 shares), including exchanges into Pearl
Total Return Fund.......................... (1,924,410) (6,061)
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARES TRANSACTIONS:
(net increase (decrease) of (107,476)
and 182,625 shares).................. (1,008,675) 1,844,701
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........ 6,451,010 (1,240,295)
NET ASSETS:
Beginning of period......................... 14,605,340 15,845,635
------------- -------------
End of period............................... $ 21,056,350 $ 14,605,340
============= =============
See notes to financial statements.
24
PEARL TOTAL RETURN FUND and
PEARL AGGRESSIVE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003 AND 2002
1. ORGANIZATION. Pearl Total Return Fund (PTRF) and Pearl Aggressive Growth
Fund (PAGF) (the "Funds") are each a series of Pearl Mutual Funds, a
Massachusetts business trust (the "Trust") registered under the Investment
Company Act of 1940, and are diversified, no-load, open-end management
investment companies (mutual funds).
The Funds' investments are limited to: (1) shares of mutual funds (open-end
funds) that the Funds can buy no-load (with no applicable sales load or
redemption fee); (2) shares of "low-load" mutual funds (open-end funds)
that the Funds can buy with a sales load or redemption fee that together do
not exceed 2% of the purchase price (however, the Funds expect that
substantially all of their investments in mutual funds will be on a no-load
basis); (3) closed-end fund shares with a sales commission or sales load
that does not exceed 2% of the purchase price (although the Funds have
never invested in closed-end funds); and (4) cash and cash equivalents.
2. SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of significant
accounting policies consistently followed by the Funds in the preparation
of their financial statements. The policies are in conformity with
accounting principles generally accepted in the United States of America.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the amounts of income and expenses during the
reporting period. Actual results could differ from those estimates. (a)
Investments in shares of other mutual funds are valued at the net asset
value as reported by each mutual fund. (b) Securities transactions are
accounted for on the trade date. (c) Dividend income and the Funds'
distributions to their shareholders are recorded on the ex-dividend date.
(d) Gains or losses on sales of investments and unrealized appreciation or
depreciation of investments are determined on the basis of average cost.
3. INCOME TAXES. It is the Funds' policy to comply with the special provisions
of the Internal Revenue Code applicable to regulated investment companies
and to make all necessary distributions of net investment income and
realized gains so that the Funds will not be required to pay any federal or
state income taxes. Therefore, the Funds make no provision for income
taxes.
As of December 31, 2003, PTRF had the following capital loss carry-forwards
available to offset future capital gains: $46,105 through December 31,
2009; $1,027,139 through December 31, 2010; and $709,766 through December
31, 2011.
PTRF's cost for federal income tax purposes was $42,572,019, including the
amounts of all reinvested dividends and distributions, as of December 31,
2003; the aggregate gross unrealized appreciation was $10,668,230; and the
aggregate gross unrealized depreciation was ($25,720); resulting in net
unrealized appreciation of $10,642,510.
As of December 31, 2003, PAGF had a capital loss carry-forward of $525,155
that is available to offset future capital gains through December 31, 2010.
PAGF's cost for federal income tax purposes was $15,332,697, including the
amounts of all reinvested dividends and distributions, as of December 31,
2003; the aggregate gross unrealized appreciation was $4,984,608; and the
aggregate gross unrealized depreciation was $0; resulting in net unrealized
appreciation of $4,984,608.
4. INVESTMENT TRANSACTIONS. PTRF's costs of purchases and proceeds of sales of
investment securities (excluding money market mutual funds) were
$15,366,315 and $14,966,309, respectively, for 2003. Purchases include
reinvestments of dividends and distributions.
PAGF's costs of purchases and proceeds of sales of investment securities
(excluding money market mutual funds) were $7,803,624 and $9,244,412,
respectively, for 2003. Purchases include reinvestments of dividends and
distributions.
25
PEARL TOTAL RETURN FUND and
PEARL AGGRESSIVE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 31, 2003 AND 2002
5. INVESTMENT MANAGER; EXPENSES. Pearl Management Company (the "Manager") has
supervisory responsibility for the general management and investment of the
Funds' assets, including the decisions to buy and sell securities. The
Manager provides personnel and office space for the Funds and pays all
expenses of marketing the Funds' shares. The Manager's combined fees are at
the annual rate of 0.86% of each Fund's average net assets up to
$30,000,000 (computed at the beginning of each month); 0.77% of each Fund's
net assets in excess of $30,000,000 and not exceeding $100,000,000; and
0.53% of each Fund's net assets in excess of $100,000,000.
The Funds' expenses are limited by contract with the Manager. Through April
30, 2002, each Fund's total operating expenses in any year (including the
Manager's fees but excluding interest, taxes, expenses for purchase or sale
of investments, and extraordinary expenses) could not exceed 0.96% of the
Fund's average net assets up to $30,000,000 (computed at the beginning of
each month); 0.90% of the Fund's average net assets in excess of
$30,000,000 and not exceeding $100,000,000; and 0.78% of the Fund's average
net assets in excess of $100,000,000. Effective May 1, 2002, each Fund's
total operating expenses in any year (including the Manager's fees but
excluding interest, taxes, expenses for purchase or sale of investments,
and extraordinary expenses) cannot exceed 0.98% of the Fund's average net
assets up to $100,000,000 (computed at the beginning of each month) and
0.78% of the Fund's average net assets in excess of $100,000,000. The
Manager reimburses all the Funds' operating expenses beyond this limit.
For 2003 expenses totaling $96,067 were reimbursed by the Manager beyond
the expense limit for PTRF. PTRF remains liable to the Manager for a
cumulative net total of $415,147 reimbursed expenses which are to be repaid
by PTRF in the future, subject to the annual expense limit and a five year
period in which the Manager has the right to recover reimbursed expenses.
For 2003 expenses totaling $44,409 were reimbursed by the Manager beyond
the expense limit for PAGF. PAGF remains liable to the Manager for a
cumulative net total of $155,497 reimbursed expenses which are to be repaid
by PAGF in the future, subject to the annual expense limit and a five year
period in which the Manager has the right to recover reimbursed expenses.
The Manager has agreed to continue the expense limit at least through
December 31, 2007.
The Manager and its Officers, Directors, and shareholders, as a group,
owned 7.84% of PTRF's outstanding shares as of December 31, 2003. Entities
affiliated with one or more Officers and Directors of the Manager owned
86.20% of PTRF's outstanding shares as of December 31, 2003.
The Manager and its Officers, Directors, and shareholders, as a group,
owned 8.65% of PAGF's outstanding shares as of December 31, 2003. Entities
affiliated with one or more Officers and Directors of the Manager owned
86.06% of PAGF's outstanding shares as of December 31, 2003.
6. COMPENSATION. The Officers and two Trustees (David M. Stanley and Robert H.
Solt) of the Funds are also Officers of the Manager; they are paid by the
Manager and receive no compensation from the Funds. The Funds' six Trustees
who are not affiliated with the Manager are John W. Axel, Jeffrey R.
Boeyink, Douglas B. Coder, Dr. David N. DeJong, David L. Evans, and Dr.
James P. Stein. The Trustees received fees from the Funds of $36,500 for
2003 and $36,000 for 2002.
7. DISTRIBUTIONS. On January 30, 2004, PTRF paid an income dividend of $.2041
per share from 2003 net investment income, to shareholders of record on
December 31, 2003. On January 31, 2003, PTRF paid an income dividend of
$.0944 per share from 2002 net investment income, to shareholders of record
on December 31, 2002. For shareholders reinvesting dividends, each
reinvestment date was the same as the record date.
On January 30, 2004, PAGF paid no dividend or distribution. On January 31,
2003, PAGF paid no income dividend or distribution.
26
PEARL TOTAL RETURN FUND
FINANCIAL HIGHLIGHTS
SELECTED PER-SHARE DATA Year ended December 31,
derived from the ------- --------------------------------------------------------------------------------
financial statements: 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994
Net asset value, beginning of
period.............................. $ 9.50 $ 10.75 $ 10.54 $ 12.16 $ 10.45 $ 11.23 $ 10.94 $ 10.15 $ 9.13 $ 9.87
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from Investment Operations
Net investment income................ 0.20 0.09 0.12 0.69 0.45 0.23 0.42 0.20 0.26 0.26
Net realized and unrealized gains
(losses) on investments............. 3.19 (1.25) 0.21 (0.50) 2.37 0.29 1.19 1.24 1.67 (0.58)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total investment operations.......... 3.39 (1.16) 0.33 0.19 2.82 0.52 1.61 1.44 1.93 (0.32)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Less Distributions (Note 7)
Dividends from net investment
income.............................. (0.20) (0.09) (0.12) (0.69) (0.45) (0.23) (0.42) (0.20) (0.26) (0.26)
Distributions from net realized
capital gains on investments........ None None None (1.12) (0.66) (1.07) (0.90) (0.45) (0.65) (0.16)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions.................. (0.20) (0.09) (0.12) (1.81) (1.11) (1.30) (1.32) (0.65) (0.91) (0.42)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period....... $ 12.69 $ 9.50 $ 10.75 $ 10.54 $ 12.16 $ 10.45 $ 11.23 $ 10.94 $ 10.15 $ 9.13
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return 35.73% (10.75%) 3.13% 1.56% 26.99% 4.60% 14.75% 14.19% 21.13% (3.19%)
================================================================================================================================
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(thousands of dollars).............. 56,352 39,928 46,807 58,875 59,603 48,752 46,662 32,910 25,623 7,557
Ratio of net expenses to average
net assets.......................... 0.98% 0.97% 0.94% 0.93% 0.92% 0.94% 0.93% 0.95% 1.06% 1.48%
Ratio of gross expenses to average
net assets.......................... 1.17% 1.26% 1.29% 1.05% 0.92% 0.94% 0.93% 0.95% 1.06% 1.48%
Ratio of net investment income to
average net assets.................. 1.97% 0.90% 0.95% 5.62% 3.85% 1.94% 3.82% 1.87% 4.52% 3.09%
Ratio of total investment income less
gross expenses to average
net assets.......................... 1.75% 0.61% 0.61% 5.50% 3.91% 2.00% 3.86% 1.91% 4.59% 3.26%
Portfolio turnover (excluding
money market mutual funds).......... 34% 55% 50% 78% 85% 79% 55% 78% 102% 87%
See notes to financial statements.
27
PEARL AGGRESSIVE GROWTH FUND
FINANCIAL HIGHLIGHTS
Period July 2,
SELECTED PER-SHARE DATA 2001 (inception)
derived from the through December
financial statements: 2003 2002 31, 2001
-------- ---------- ----------------
Net asset value, beginning of
period.......................... $ 8.19 $ 9.90 $ 10.00
-------- ---------- ----------------
Income from Investment Operations
Net investment income (loss)..... (0.03) (0.07) 0.06
Net realized and unrealized
gains (losses) on investments... 4.40 (1.64) 0.00
-------- ---------- ----------------
Total investment operations...... 4.37 (1.71) 0.06
-------- ---------- ----------------
Less Distributions (Note 7)
Dividends from net investment
income.......................... None None (0.06)
Distributions from net realized
capital gains on investments.... None None (0.10)
-------- ---------- ----------------
Total distributions.............. None None (0.16)
-------- ---------- ----------------
Net asset value, end of period... $ 12.56 $ 8.19 $ 9.90
======== ========== ================
Total Return..................... 53.36% (17.27%) 0.60%
============================================================================
- ----------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(thousands of dollars).......... 21,056 14,605 15,846
Ratio of net expenses to average
net assets...................... 0.98% 0.98% 0.96%*
Ratio of gross expenses to
average net assets.............. 1.22% 1.31% 2.07%*
Ratio of net investment income
(loss) to average net assets.... (0.29%) (0.82%) 1.48%*
Ratio of total investment income
(loss) less gross expenses to
average net assets.............. (0.55%) (1.15%) 0.60%*
Portfolio turnover (excluding
money market mutual funds)...... 47% 56% 13%*
* Annualized
See notes to financial statements.
28
www.pearlfunds.com
E-mail: info@pearlfunds.com Pearl Funds
- --------------------------------------------------------------------------------
2610 Park Avenue PO Box 209 Muscatine, IA 52761
866-747-9030 (toll free) or 563-288-2773
Fax: 563-288-4101
Item 2. Code of Ethics.
(a) Registrant has adopted a code of ethics that applies to its principal
executive officer, principal financial officer and principal accounting officer
(the "Code").
(b) No disclosures are required by this Item 2(b).
(c) During the period covered by the report, registrant did not make any
amendments to the provisions of the Code.
(d) During the period covered by the report, registrant did not grant any
waivers, including implicit waivers, from the provisions of the Code.
(e) Not applicable.
(f) A copy of the Code is filed as Exhibit (a)(1) to this Form N-CSR.
Item 3. Audit Committee Financial Expert.
Registrant's board of directors has determined that David L. Evans, a member of
its audit committee, qualifies as an "audit committee financial expert," as such
term is defined in Instruction 2(b) to Item 3 of Form N-CSR. Mr. Evans is an
independent trustee.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees
$38,600 and $35,600 are the aggregate fees billed in each of the last two fiscal
years for professional services rendered by the principal accountant to the
registrant for the audit of the registrant's annual financial statements or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements for those fiscal years.
(b) Audit-Related Fees
There were no fees billed in each of the last two fiscal years for assurance and
related services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of this Item 4.
There were no fees billed in each of the last two fiscal years for assurance and
related services rendered by the principal accountant to the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant (the "investment adviser") that are reasonably related to the
performance of the audit of the registrant's financial statements, are not
reported under paragraph (a) of this Item 4 and were required to be pre-approved
by the audit committee as described in paragraph (e)(1) of this Item 4.
(c) Tax Fees
There were no fees billed in each of the last two fiscal years for professional
services rendered by the principal accountant to the registrant for tax
compliance, tax advice and tax planning.
There were no fees billed in each of the last two fiscal years for professional
services rendered by the principal accountant to the investment adviser for tax
compliance, tax advice and tax planning and were required to be pre-approved by
the audit committee as described in paragraph (e)(1) of this Item 4.
(d) All Other Fees
$6,100 and $6,100 are the aggregate fees billed in each of the last two fiscal
years for products and services provided by the principal accountant to the
registrant, other than the services reported in paragraphs (a)-(c) of this Item
4. Services for all other fees include the review of the semi-annual report for
compliance with generally accepted accounting principles (GAAP) and SEC
regulations.
There were no fees billed in each of the last two fiscal years for products and
services provided by the principal accountant to the investment adviser, other
than the services reported in paragraphs (a)-(c) of this Item 4, that were
required to be pre-approved by the audit committee as described in paragraph
(e)(1) of this Item 4.
(e) (1) Registrant's audit committee meets with the principal accountants and
management to review and pre-approve all audit services to be provided by the
principal accountants.
The audit committee shall pre-approve all non-audit services to be provided by
the principal accountants to the registrant; provided that the pre-approval
requirement does not apply to non-audit services that (i) were not identified as
such at the time of the pre-approval and (ii) do not aggregate more than 5% of
total revenues paid to the principal accountants by the registrant during the
fiscal year in which the services are provided, if the audit committee approves
the provision of such non-audit services prior to the completion of the audit.
The audit committee shall pre-approve all non-audit services to be provided by
the principal accountants to the investment adviser where the nature of the
services provided have a direct impact on the operations or financial reporting
of the registrant; provided that the pre-approval requirement does not apply to
non-audit services that (i) were not identified as such at the time of the
pre-approval and (ii) do not aggregate more than 5% of total revenue paid to the
principal accountants by the registrant for all services and by the registrant's
investment adviser for services where the nature of the services provided have a
direct impact on the operations or financial reporting of the registrant during
the fiscal year in which those services are provided, if the audit committee
approves the provision of such non-audit services prior to the completion of the
audit.
(2) 100% of the services provided to the registrant described in paragraphs
(b)-(d) of this Item 4 were pre-approved by the audit committee pursuant to
paragraph (e)(1) of this Item 4. 100% of the services provided to the investment
adviser described in paragraphs (b)-(d) of this Item 4 were pre-approved by the
audit committee pursuant to paragraph (e)(1) of this Item 4.
(f) No disclosures are required by this Item 4(f).
(g) $6,100 and $6,100 are the aggregate non-audit fees billed in each of the
last two fiscal years for services rendered by the principal accountant to the
registrant. There were no non-audit fees billed in each of the last two fiscal
years for services rendered by the principal accountant to the investment
adviser.
(h) No disclosures are required by this Item 4(h).
Item 5.
Not applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. [Reserved]
Item 9. Controls and Procedures.
(a) Based on an evaluation of the disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940, the "Disclosure
Controls") as of a date within 90 days prior to the filing date (the "Filing
Date") of this Form N-CSR (the "Report"), the Disclosure Controls are
effectively designed to ensure that information required to be disclosed by the
registrant in the Report is recorded, processed, summarized and reported by the
Filing Date, including ensuring that information required to be disclosed in the
Report is accumulated and communicated to the registrant's management, including
the registrant's principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes in the registrant's internal controls over financial
reporting (as
defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred
during the registrant's most recent fiscal year that has materially affected, or
is reasonably likely to materially affect, the registrant's internal control
over financial reporting.
Item 10. Exhibits.
(a)(1) Code of Ethics for Principal Executive Officer, Principal Financial
Officer and Principal Accounting Officer (as referenced in Item 2 above),
attached hereto as Exhibit (a)(1)
(2) Certifications pursuant to Rule 30a-2 under the Investment Company Act of
1940 (17 CFR 270.30a-2), attached hereto as Exhibits (a)(2)(i) and
(a)(2)(ii)
(b) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
attached hereto as Exhibit (b)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Pearl Mutual Funds
By: /s/ David M. Stanley
-----------------------------------
David M. Stanley
Trustee, Chairman, President,
Chief Executive Officer and
Assistant Secretary
(Principal Executive Officer)
Date: February 27, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ David M. Stanley
-----------------------------------
David M. Stanley
Trustee, Chairman, President,
Chief Executive Officer and
Assistant Secretary
(Principal Executive Officer)
Date: February 27, 2004
By: /s/ Robert H. Solt
-----------------------------------
Robert H. Solt
Trustee, Executive Vice President,
Chief Operating Officer,
Chief Financial Officer,
Secretary and Treasurer
(Principal Accounting Officer)
Date: February 27, 2004